Investing icon Ray Dalio defends gold as the 'safest money' even after its big plunge

• Ray Dalio still thinks gold is the "safest money" even after last week's plunge.
• The billionaire investor said the haven status of the metal didn't change "by the day."
• He flagged bullion's large presence in central bank reserves, which suggests institutional trust.

For Ray Dalio, gold hasn't lost its shine.

While many metal investors are likely still shaken by gold's 12% plunge last Friday, the famed hedge fund founder said he wasn't fazed by gold's big drop. That's because bullion is still a safe-haven asset, Dalio said, making the case for why gold should still be a part of investors' portfolios at the World Governments Summit on Wednesday.

Speaking at the conference in Dubai, the Bridgewater founder noted that gold was still held in large amounts by the world's central banks. Bullion surpassed the euro as the second-largest reserve asset last year.

"I think if people were to make — those who are running policies and so on — were to say, they would say gold is the safest money in this kind of environment," Dalio said.

The safety of the metal also doesn't "change by the day," Dalio added, referring to the gold's long-standing status as a hedge against inflation and an alternative to fiat money.

While gold is still down 7% from its all-time high, its price is up 71% in the last year.

"I think people make the mistake of thinking, 'Is it going to go up or down, and should I buy it?'" Dalio said, suggesting that a better question would be how much an investor should allocate to gold as a percentage of their total portfolio.

Gold sold off hard alongside other metals last week as investors took in President Trump's nomination of Kevin Warsh for Fed Chair. Investors quickly repriced their outlook for rates and the dollar, prompting a rapid unwind of their metal positions.

Part of gold's allure in the past year has also been fueled by perceived economic risks, such as the fear that debt levels could rise to unsustainable levels or that the US dollar could weaken alongside other fiat currencies.

Dalio, who has regularly warned markets of such risks, said he still believes the US is "on the brink" of a capital war, a situation where geopolitical tensions make global investors hesitant to lend money to the US by buying its bonds.

"Gold is a diversifier. In other words, when the bad times come along, it does uniquely well," Dalio said. "I'd say the most important thing is to have a well-diversified portfolio."

Dalio is known for being a proponent of gold investing. In the past, he's recommended that investors allocate 15% of their portfolios to gold and bitcoin, pointing to concerns about currency debasement.